Category Archives: Financial Doing

Retirement Planning: What do I need to know about my pension plan?

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When you retire, your paychecks will stop.

But you want to have fun.  You have been putting off so many things, thinking “When I retire, I am going to {fill in the blank with that thing you really want to do, but have to put off until you have more time }”.   How will you pay for retirement if you are not getting a paycheck?

That is where retirement planning comes in.

The idea is to make sure that the nest egg you have accumulated, plus income from sources like Social Security and pensions will be able to pay for your expenses in retirement.

I have written about expenses to consider in retirement.  If you are fortunate enough to have a pension, let’s look at a few tips to help you when gathering information about your pension to prepare for retirement planning.

Where to find information about your pension

Information can be found in the Summary Plan Description for your pension.  It can usually be found on the website for your pension or from your human resources department.  Or if you are in a union, talk with your union representative.

What kind of plan is it?

Is this a pension or a cash-balance plan?  A pension is not portable, if you leave your employer then the pension will stay with the employer until you are of retirement age.  If it is a cash-balance plan and you leave, it is portable; you may keep it with the employer, or roll it into an IRA.  There are other differences as well.  Consult your Summary Plan Description for the details of your plan.

Important ages or milestones for your pension

Knowing what ages or milestones are significant for your plan may impact your decision about when to retire.  Keep in mind this could also be a combination of your age and years of service.

  • Find out the age at which you become fully vested in your pension.  Vesting means that you keep contributions made on your behalf by your employer.
  • Find out the earliest age at which you could retire with a pension.
  • Find out the age at which you get your full benefit, any benefit taken before that age will be a reduced benefit.

How can you get your money?

Each plan has different options.  Find out what your plan offers.  Can you get a lump sum?  Can you take a partial lump sum and the rest in monthly payments for the rest of your life?  Does your plan offer a survivor option so that if you pass away, your spouse will still receive an income?

Is there a Cost of Living Adjustment?

A Cost of Living Adjustment, or COLA, would mean that the monthly payment would go up each year to adjust for inflation.   This is an unusual benefit, most employers do not offer this on their pension plans.  Many union plans do.  The Missouri Teacher’s pension is an example of a pension that has a COLA.  If your pension has a COLA, find out how yours works.

How much money can you expect?

This is the fun part of the information gathering exercise; finding out the estimate of how much money you would get at retirement.  There is usually a website where you can run pension benefit estimates, if not then talk with your human resources department or union representative.  Find out pension benefit estimates for the age at which you would like to retire and the age at which you get the full benefit.   Also look at other ages so that you can compare the amounts based on different retirement ages.

Does your pension plan set a maximum benefit?

What does it take to max out the pension?  Can you buy credits to increase your pension payment?

Investing time now in understanding your pension will reap rewards in retirement, allowing you to make the most of your benefit.

Should we pay off our mortgage?

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“We have a lot of cash in our savings account.  Should we pay off our mortgage or invest the money for retirement?”

When you give financial advice “by the hour” you get asked questions like these.  And the answer is… it depends.

It depends on;

* your attitude about owing money

* how much of a nest egg you have accumulated for your retirement because you will need cash to pay bills after you stop working and therefore stop getting paychecks

* what other financial goals you have and if you are on track to achieve them

* what interest rate you will pay on the mortgage and the assumed rate on the investments, and other assorted mathematical inputs

“Should we pay off our mortgage?” is a question that is more than a math calculation.  After the math is figured, take it a step further and think about how you will feel during retirement with and without a mortgage payment.

No mortgage in retirement

I have never heard anyone say they regret paying off their mortgage.  And there are ways to tap into a portion of the home equity if needed.  However, many retired folks have shared with me that they wished they had been wiser in their approach to mortgage debt so they didn’t have a mortgage while retired.  I have sometimes noticed during an initial meeting when I meet with a couple who have a mortgage, they seem more concerned about market fluctuation than other couples who do not have a mortgage.

Mortgage in retirement

There are a few couples that I can remember meeting with that have a mortgage in retirement and they were comfortable with it.  They outlined the math in a logical way and how it made sense for them.   They liked that it left them with more available cash in retirement.  I agreed with them, that it seemed to work for them.

When to pay it off? 

If your last mortgage payment is due after the day you would like to retire, jump on one of the many financial calculator websites and figure out the extra payment you would need to send each month in order to time your last mortgage payment with your retirement date.  You might be surprised to find how little additional money needs to be sent in order to pay the loan off by your retirement date.  How great would that feel?  Be sure to call your mortgage servicer to be certain that you do not have a pre-payment penalty, pretty unlikely, but just in case.  Make sure that you can still afford to make enough of a contribution to retirement accounts so that you can retire on time!  And that you are able to save for any other financial goals that are important to you.

What not to do

What I think is unfortunate, is to see a young couple that has heard that it is good to pay off your mortgage sending every available dollar to the mortgage company – with no emergency fund!  And they have not been saving in the company retirement plan, no savings for vacations or other goals.  A balance is needed.  Get the emergency fund created first!  Then create a prioritized list of goals and send money to each based on your priority.

The mortgage problem

The mortgage problem of having a large mortgage when retirement time rolls around isn’t usually created with the starter home, it usually happens when people move up into a series of bigger and bigger homes or take out cash to remodel.   That is when it is especially important to check to see if you can afford to pay the mortgage off by your target retirement date.

What To-Do?

Write down the approximate date that you would like to retire.

Write down the date that your mortgage payment will be done.

If the mortgage will be done after you retire, satisfy your curiosity and find out how much extra you would need to send in to pay your mortgage off in time for retirement.

You could call your mortgage company and ask them.  Or you could use an online mortgage payment calculator and the amount of principal left on your loan, how many months or years until retirement, the interest rate on your loan and find out for yourself.  Just remember that the monthly payment it quotes you is just the principal and interest, if you have your taxes and insurance escrowed you would add that on top of the principal and interest.

Invest just a few minutes, and you could be on track to having your mortgage paid off in retirement.

Retirement Plan: 10 Expenses to Consider

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Part of the process of determining if you can afford to retire, is to run the numbers to see if the amount of money you have saved plus any expected income you may receive from pensions and Social Security will cover all of your expected expenses throughout retirement.

After working with people for so many years, the one thing I have noticed is that many people have faithfully kept spreadsheets of their day-to-day living expenses and have used those figures to help create their retirement plan.  People often come to me to check their thinking, when they are a few years away from retirement, to make sure they are on track to retire.

However, I often discover that people overlook the irregular expenses when planning for retirement on their own.   And it is the irregular expenses that can derail a retirement plan, and cause stress and sleepless nights.  The tricky thing of course is trying to see into the future and figure out what possible expenses can occur.

Here is list of some of the potential items that you might consider adding to your retirement plan.  They won’t all pertain to you, but I hope they will get you thinking about what your retirement could look like, and help you plan for your future.

Replacing cars

I often hear people say that they will just use the same car throughout retirement.   And if you do not work with retired people on a regular basis like I do, I can see where you might think that.  When you are pre-retirement age, retirement seems like a phase of life that is a mysterious unknown.  So I ask them how often they replace their car, and I usually hear answers like every 6 years or every 10 years, and everything in between.  A married couple that retires at 65 and drives until 85, replacing cars every 6 years,  will buy 6 cars in retirement.  I wrote a blog about the impact of inflation on car prices in retirement, many people are very surprised when I show them the expected price of the last car they will buy in retirement.

Travel for fun

When I ask people what they want to do when they retire, travel is one of the first things people say.  If you see travel in your future, think about how often, and what type of travel, do some internet searching to get a ball park estimate of the cost that would be involved.

Travel to see the grandkids

Don’t forget about travel to see the grandkids, I mean your adult children.  Who am I kidding?  You are taking a trip to see those adorable grandkids!  If your family is like so many these days, you might have to hop on a plane to feel those little arms wrapped around you.  With Skype, you don’t have to be there to see them anymore.  But no technology can replace an in-person visit.   Trust me; you will want to plan for this expense.

50th Wedding Anniversary Celebration

In this day and age, fifty years of marriage is an especially wonderful milestone.  Some families have a dinner reception, inviting extended family and close friends, which can be the size of a small wedding reception.  I have also seen couples treat families to Disney vacations or to cruises.  If you have dreams of recognizing a milestone with a special celebration, don’t forget to plan for it so that when the time comes, you can relax and enjoy it.

Medicare

What?  It isn’t free?  No, I am sorry to have to tell you, it isn’t.  And I find that I am often the first to break this news to people.   Because if they have never had to help a family member through the process of signing up for Medicare and they are more than a few years away from retirement, then researching “How does Medicare work?” usually hasn’t crossed their mind.   Luckily there are some good resources such as www.medicare.gov and for Missouri residents https://missouriclaim.org/.

Long Term Care/Nursing Care

In 2012 the average annual cost of care in a nursing home in Missouri is approximately $55,000.  The cost of nursing care has been increasing considerably faster than inflation.   One way to offset the risk to your portfolio is to consider Long Term Care insurance that would cover a portion or all of the cost of care, depending on your risk tolerance and the affordability of the premium.  I am a fee-only advisor so I do not offer insurance products, but I have recommended that some clients get Long Term Care insurance.  Other clients have been able to self-insure, each situation is different.  But you do need to consider the impact a stay would have on your portfolio.  To learn more read my blog post Long Term Care Insurance: Protect your nest egg.

Big delayed purchases

Have you been dreaming of a cross country trip in a motor home?  Or does the water call your name so a boat is more to your liking?  Don’t forget to set aside some money for upkeep and repairs.

Home Improvements and Major Maintenance

If you are in your forever home, factoring in the large inevitable maintenance projects such as replacing a roof or HVAC system will help prevent money stress later on down the road.  Also, after a few decades, kitchens and baths tend to need updates.  Remodels with an eye toward aging gracefully in place are also becoming quite popular.  Consider the age of your home and prior remodels when planning future income needs.

College and Wedding/Rehearsal Dinner

Depending on the age of your children, you may have college and wedding/rehearsal dinner expenses in retirement.

Care for a Family Member

Will a loved one be financially dependent upon you, such as a parent or a special needs child?  If so, you might consider meeting with an elder care attorney or estate planning attorney that specializes in special needs trusts.

These are a few areas to consider in addition to everyday living expenses when you are creating your retirement plan.

 

Financial Doing: Because if it’s just Financial Planning, it will never happen!

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I have a theory that just about everyone has important financial To-Do items sitting on their To-Do list.  However, those financial To-Dos often just sit there because there isn’t a looming deadline to make them seem urgent (“Save for college and retirement?  Oh that’s so far away!”).  You can read more about my philosophy in      It’s on your To-Do. Let’s get it To-Done!

Let’s say you decide to address those To-Do items so you create a financial plan.  Well a plan will not help you if you do not implement it!  So let’s take you from Financial Planning to Financial Doing!  For those of you who have taken the step of creating a plan, I would like to give you some easy things to do so that you can get some momentum going on your path to Financial Doing!

Here are some quick things you can do and knock off of your To-Do list…

Social Security

If you are under 60 years old, the government does not mail you a Social Security Benefits statement any more.  Learn how easy it is to pull up a copy of your statement online in my blog post Full Social Security Statements Now Available Online.

Annual Credit Report

You know you should get your free copy of your credit report each year, but with so many advertisements you aren’t sure where to go.  I clear up the confusion in my blog post Annual Credit Report: Where to go to get your free credit report.

Lost Money

This one is just a “no brainer”; it takes only a few seconds to check to see if you have lost money.  One in ten Missouri residents does.  Are you one of them?  Missouri Unclaimed Property: Are you due some money?

Take the first step today to change your Financial Planning to Financial Doing, I promise, it will feel great to finally start attacking the To-Dos!

Missouri Unclaimed Property: Are you due some money?

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Did you know that if you don’t stay in contact with your financial institution that you can “lose” your money?  Where does it go?  To the state in which you last lived as far as the financial institution is aware.  That state holds it as Unclaimed Property.  They would really like people to come claim it, and ideally spend it, putting it back into the economy.

How do I find out if I have Unclaimed Property in Missouri?

It is easy and just takes a few seconds, really!  Go to www.showmemoney.com type in your last name leave a space then a few letters of your first name.  Did your name pop up?  Then you have Unclaimed Property!   Be sure to check other names you have had such as maiden names or other married names.

How do I get my Missouri Unclaimed Property? 

If your name popped up then click on the word “Select” next to your name then click on the “File a Claim” button under your name.  Most people can file a paperless claim this way.  If not, you can mail in a request, just follow the instructions online.

How much does it cost?

Do not pay anyone to find or get you your Unclaimed Property.  Just go to the Missouri Treasurer’s website.

What if I have lived in other states too?

Go to www.unclaimed.org to check the websites of other states in which you have lived.  They also have a great page with links to other types of lost money, like undeliverable federal tax refund checks, veterans benenfits you may be due, and lost money in overseas accounts.

What kind of items can become Unclaimed Property?   

The property comes from bank and brokerage accounts, stock dividends from certificated shares, unclaimed insurance proceeds, among other items.

How much money does Missouri have in Unclaimed Property right now?

There is 700 million dollars in Unclaimed Property in Missouri right now in 4.3 million accounts.  Since one in ten residents has unclaimed property be sure to tell your family and friends to look too.

How long does the money sit in Unclaimed Property in Missouri?

The money does not ever go to Missouri, it just sits there waiting to be claimed by you or your heirs.  So go get your money, the state wants you to spend it!  But you know what I would tell you… spend some, share some, invest some.